SWEDEN – The ‘Ericsson effect’ is changing the attitudes of Swedish asset allocation, according to leading consultants. The telephone company’s shares reached SEK930 (e103) at closing of the Stockholm exchange on March 7, 2000; on January 2, 2001 an Ericsson share cost SEK110; yesterday they were worth SEK85 each. Swedish institutional investors seem to be the last of the Nordic players to go global on their asset allocation, probably due to the international status of the OM exchange in Stockholm.

"In the last three years the Ericsson-effect has had some impact on every board meeting, either it has caused abnormally positive or abnormally negative exposure to it," says Mats Langensjö, managing director of Stockholm based consultancy Wassum.

The main problem is that most pension institutions hold vast amounts of Ericsson shares. Out of the total SEK530bn, the state AP buffer funds had SEK36.6bn invested in the company when the assets of the funds were re-shuffled at the end of last year. Ericsson accounted for 32% of their Swedish portfolios, and 7% of their total assets, according to the research company SIS Ägarservice. The AP funds are also heavily invested in Swedish banks and investment companies, who own large chunks of Ericsson on their behalf, according to a research by the Swedish financial newspaper Dagens Industri.

Some of the major pension and financial institutions had large shares of their assets invested in Ericsson at the end of last year. Large pension providers, like AMF Pension, Alecta (formerly SPP), Folksam, Länsförsäkringar and Skandia had between 22 and 32% of their Swedish equity exposure in the phone company, according to Dagens Industri.

Some Swedish pension funds have had, and still have, a restriction of 10%, or 15%, out of their total asset allocation on a single stock. For passive investors, however, this caused problems because Ericsson, at times, made up a third of the country index.

"If Ericsson is 20% of the index, having a 10% restriction is quite a considerable move away from it, which is fine if you know what you are doing," says Langesjö at Wassum.
"If you have a 10% restriction you’re heavily underweight of the index, if you don’t have it, a third of your assets might be relying on one company. In the long term it has led to a realisation of company specific risk and therefore has led to discussion on more global allocation," Langensjö adds.

The whole of the Nordic region has had similar teething problems in globalising their exposure in recent years; but Sweden, historically probably the most international of the countries in the area, seems to be the most reluctant to go into wider asset allocation. "The Finnish managers have been very open to pan-European, or Euroland allocation. Even if you would expect the Swedes to be international, I would say that even the Norwegians or the Danes have been more open. I think the Swedes are the last ones to take a big step towards global allocation; but I think that one of the main reasons is that we’ve had a quite diversified and well-performing stock market for longer," Langensjö concludes.

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